New IRS offshore amnesty program

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The IRS is now working on creating a path specifically for otherwise honest people who want to comply with their U.S. tax obligations, without using the hammer of steep penalties designed primarily to punish U.S. residents trying to duck their taxes. New IRS commissioner John Koskinen, acknowledged that his agency has been fixated on tax cheats, with too little regard for “non-willful” victims of its crackdown.

“Our goal is to ensure we have struck the right balance between emphasis on aggressive enforcement and focus on the law-abiding instincts of most U.S. citizens who, given the proper chance, will voluntarily come into compliance and willingly remedy past mistakes.”

This is good news for an untold number of Expats who continue to stay in the shadows, not filing tax returns, as required by U.S. law.

Mr. Koskinen’s motives may not be entirely altruistic. The promise to create an easier amnesty program comes just weeks before the Foreign Account Tax Compliance Act comes into effect July 1. The law is expected to create a flood of information for the IRS to sort through.

For individuals whose only transgression is a failure to file U.S. tax returns, compliance has meant years of complicated back taxes and onerous foreign account disclosures, the threat of steep penalties and up to tens of thousands of dollars in accounting fees. As a result, many people have chosen to stay in the shadows, afraid of the heavy and unpredictable financial burden of coming clean.

In summary, any Expat is subject to the following obligations in addition to file a tax return:
FATCA. If you hold assets over $50,000 in a bank account or any other kind of financial assets outside the US during the year, you need to report it. This reporting goes with your regular income tax return deadline April 15. IRS imposes a penalty of $10,000 if you fail reporting and $10,000 for each month thereafter up to a maximum of $60,000. Criminal charges may also apply.
FBAR. If you hold assets over $10,000 in a bank account or any other kind of financial assets outside the US during the year, you need to report it. This reporting requirement is in addition to FATCA. FBAR reporting goes separately of your income tax return and its deadline is June 30. It is an online filing only. IRS imposes a penalty of $10,000 if you unwillfully omit this reporting. If wilfully, you will be subject to a penalty of $100,000 or 50% of your holdings in foreign accounts, whatever is greater. Criminal charges may also apply.

 

If you find yourself in non-compliance with these regulations for previous years, there are some remedies that you can benefit from.
IRS streamlined Program. If you want to come up-to-date with your foreign holdings over $10,000 because you were unaware of the FBAR rules, this is the program for you: file 3 years back income tax returns and file 6 years back FBAR reports, pay taxes, pay interest but NO PENALTIES AND AVOID CRIMINAL PROSECUTION
Offshore Voluntary Disclosure Program (OVDP). If you have willfully hidden funds in foreign accounts, then this is the best way to come clean. File 8 years back of income tax returns, 8 years back of FBAR reports, pay taxes, pay interest and pay penalties for up to 27.5% AND AVOID CRIMINAL PROSECUTION.

June 16 Deadline Nears for Taxpayers Living Abroad to Report Foreign Accounts

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WASHINGTON — Taxpayers abroad qualifying for an automatic two-month extension must file their 2013 federal income tax returns by Monday, June 16, according to the Internal Revenue Service.

The June 16 deadline applies to U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular April 15 due date. Eligible taxpayers get one additional day because the normal June 15extended due date falls on Sunday this year. To use the two-month extension, taxpayers must attach a statement to their tax return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for more information.

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts on their federal income tax return. Separately, U.S. persons with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

Form 114 replaces TD F 90-22.1, the FBAR form used in the past. It is due to the Treasury Department by Monday, June 30, must be filed electronically, and is only available online through the BSA E-Filing System website. This due date cannot be extended and tax extensions do not extend the FBAR filing due date. For details on FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).

To help those with the obligation to report their foreign accounts comply with the FBAR filing requirement, the IRS will hold a free one-hour webinar onWednesday, June 4, starting at 2 p.m. Eastern time. Those interested in participating in the webinar must register for this event. More information is available on IRS.gov.

Taxpayers abroad can now use IRS Free File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $58,000 or less can use brand-name software to prepare their returns and then e-file them for free. A second option, Free File Fillable Forms, the electronic version of IRS paper forms, has no income limit and is best suited to people who are comfortable preparing their own tax return. Check out the e-file link on IRS.gov to find out more about these and other electronic filing options. E-file and Free File will be available until Oct. 15, 2014.

Taxpayers who cannot meet the June 16 deadline can get an automatic extension until Oct. 15, 2014. This is an extension of time to file, not an extension of time to pay. Interest, currently at the rate of three percent per year compounded daily, applies to any payment made after April 15, 2014. In some cases, a late payment penalty, usually 0.5 percent per month, applies to payments made after June 16, 2014.

Taxpayers abroad, regardless of income, can use Free File to request a tax-filing extension. Alternatively, eligible taxpayers can download and file Form 4868, available on IRS.gov.

In some cases, an additional extension beyond Oct. 15 may be available. Details are in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. In addition, members of the military and others serving in Afghanistan and other combat zone localities normally have until at least 180 days after they leave the combat zone to file their returns and pay any taxes due. For details, see Extension of Deadlines in Publication 3, Armed Forces Tax Guide.

Any U.S. taxpayer here or abroad with tax questions can use the online IRS Tax Map and the International Tax Topic Index to get answers. These online tools assemble or group IRS forms, publications and web pages by subject and provide users with a single entry point to find tax information.